Artificial intelligence (AI) tool ChatGPT became the fastest-growing internet application in history as it reached 100m monthly active users in just two months. It has certainly demonstrated the disruptive potential of AI. And it’s left many investors wondering which stocks to buy to gain exposure to it!
Alphabet and Microsoft (which owns a significant share of ChatGPT’s owner OpenAI) are the most obvious stocks in the space. That’s due to the tens of billions they’ve already poured into developing AI applications. But here’s two other AI-powered stocks I’ve bought for the next decade.
Powering ChatGPT
ChatGPT’s breakout success is likely to fuel the development of many more AI tools over the next 10 years. That will require greater computing power and therefore more chips. That’s good news for Nvidia (NASDAQ: NVDA), which designs various AI chips.
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It has market dominance in graphic processing units (GPUs), which are specialised components that can process many pieces of data simultaneously. This makes them useful for many applications, particularly machine learning, a subset of AI.
Indeed, ChatGPT was trained on 10,000 Nvidia GPUs. That was part of the company’s multi-year deal with Microsoft to build a new supercomputer hosted in Azure, Microsoft’s cloud-computing platform. This supercomputer will be powered by Nvidia’s GPUs and software for training AI systems.
Today, the company is the go-to partner for businesses wanting to utilise AI. More than 35,000 companies are now building on the Nvidia AI platform.
One thing worth noting is that the shares can be extremely volatile. Last year, the stock lost nearly half its value. In 2023, it’s already up 56%.
No longer a luxury
As the digital universe grows ever larger, so does cyber crime. In response, the global cybersecurity market is projected to grow from $155bn in 2022 to $376bn by 2029, according to Fortune Business Insights. Cybersecurity has now become a necessity for most firms rather than a luxury.
To me, CrowdStrike (NASDAQ: CRWD) looks poised to continue expanding into this growing market. This is a cloud-based cybersecurity company that uses its AI-powered Falcon software platform to detect and prevent threats.
AI improves the company’s software continuously by analysing trillions of signals every week. A machine-learning model determines what activity is normal, an anomaly, or a threat. So when one customer is attacked, all other CrowdStrike customers instantly gain more protection as that weakness cannot be exploited twice. Hence the name of the company.
Growth has been eye-catching to say the least. CrowdStrike had 5,431 total subscription customers in January 2020. That figure rocketed to 21,146 by the third quarter of fiscal 2023. Revenue has ballooned from $119m in 2018 to an expected $2.2bn in fiscal 2023.
The firm has been free-cash-flow positive for some time, but should start posting significant profits in the years ahead.
Down 38% in the last 12 months, the stock is trading at its lowest valuation since going public in 2019. That’s not to say a price-to-sales (P/S) ratio of 13 is cheap, of course. There could be valuation risk here, especially if the market turns against growth stocks.
But I expect cybersecurity as an industry – and CrowdStrike as a company – to be far larger in 10 years. I recently started a long-term position in the stock.
